Top Hedge Funds Predict How It All Will End
by Tyler Durden
Dec 9, 2016 11:52 PM
In early 2009, roughly at the time when this blog was launched which coincided with the start of the greatest monetary experiment of all time, we warned that there are two ways it will end: either in hyperinflation, or a deflationary supernova, the failure of currency and, eventually, barter. Now, almost 8 years later, some of the world's top hedge funds are in agreement, and they are worried.
As the WSJ reports, these prominent hedge fund managers join an increasingly bigger and louder chorus which says central bank bond buying programs that are pumping trillions of dollars into global markets will end badly.
In yesterday's main event, the ECB said it would extend its asset purchase program to the end of next year, buying bonds at a reduced rate. As the following chart from BBG projects, at the ECB's revised rate of bond purchases, its balance sheet will soon surpass that of the Fed.
[url=http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/07/HF comp.jpg][/url]
So what happens next? Prominent managers have told The Wall Street Journal in recent interviews of their doubts about the endgame for quantitative easing around the world.
“There’s no non-messy way out of this,” said Luke Ellis, chief executive of Man Group, one of the world’s biggest hedge-fund firms with $80.7 billion in assets. “There’s two versions” of how this ends, he added. Either central banks could move to so-called ‘helicopter money,’ where they buy debt from the government, which then spends the proceeds or gives it to the population to spend. This “for a few years looks golden then leads to hyperinflation,” he said. Or the speed at which money circulates within the economy could grind to a halt. “Then you effectively have a barter economy,” he said.
In a series of exclusive interviews with the Journal, hedge-fund executives overseeing around $280 billion in total highlighted a range of problems created by quantitative easing. The problems they highlight are precisely those that QE was designed to solve, and are exactly the same problems we warned about since the 2009, for which we have been repeatedly branded some variation of "fake news." Now the skepticism has become mainstream.
This is what, according to the hedge fund managers interviewed by the WSJ, will happen:
Damage to economic growth
Rather than kick-starting growth, quantitative easing may do the reverse. Some managers fear it distorts financial markets and undermines capitalism. That system relies on profit-hungry investors to differentiate between strong and weak companies—funding the strong while letting the weak die. QE, say some managers, doesn’t differentiate.
For instance, the Bank of England is buying the debt of firms it deems make “a material contribution” to the U.K. economy. That has led some investment banks and companies to create new debt especially for it to buy. The ECB has bought €48.2 billion ($51.2 billion) of corporate debt since June, but the hoped-for private-sector investment hasn’t materialized.
“What does a market do? It’s a voting mechanism,” said Michael Hintze, billionaire founder of hedge fund CQS, which runs around $12 billion in assets. “Instead you’ve got this 800-pound gorilla out there who’s hoovering up assets. “There’s a misallocation of capital and an opportunity cost to the real economy,” added Mr. Hintze, whose portfolio is up 30% this year, ranking it one of the world’s top-performing hedge funds. “It means GDP is not growing as much as it might.”
Some put it even more strongly. “It’s definitely destructive of economic growth,” said Crispin Odey, founder of Odey Asset Management, which runs $8.2 billion in assets.
“Capitalism dies a death,” said Mr. Odey, who sees government policy as the main factor influencing markets. His fund, a top performer after the credit crisis, is down sharply this year because of being too bearish. “It’s all policy. It’s the Kremlin. And I’m in the gulags.”
* * *
Damage to society
In her speech to the governing Conservative Party conference in October, U.K. Prime Minister Theresa May spoke of “some bad side effects” from quantitative easing as people with assets got richer while those without them suffered. U.S. President-elect Donald Trump has said low rates have robbed savers. Those side effects include “envy and distress” within society, “as people think ‘I can’t get out of where I am,’” said Andrew McCaffery, group head of solutions at Aberdeen Asset Management, who looks after $170 billion in assets.
Ultralow interest rates mean the large part of the population with few financial assets begins to despair of how to generate income to fund retirement, he said.
“People see a developing black hole,” he said. This “increases the sense of there being little to lose for many” people.
Andrew Law, chief executive of New York-based Caxton Associates LP, which runs around $7.8 billion, said quantitative easing averted economic depression after the financial crisis.
But he added: “The losers of QE are society, and democracy is also a loser, because central banks are not publicly elected officials.”
* * *
Deflation
Quantitative easing was also introduced as a way of increasing private-sector spending and raising inflation. Some investors even worried it would spark hyperinflation and rushed to buy gold. Instead, say some managers, it has led to deflation.
“It took me a long time to work it out,” said CQS’s Mr. Hintze. “It’s a very complex issue.” He said that massive amounts of liquidity mean that “liquidity’s not worth much anymore,” which leads to negative interest rates. “I do think it [QE] is a massive deflationary force. The reason is because money is worth less but the price of real assets goes up.”
Mr. Odey said quantitative easing leads to deflation because weaker competitors are kept alive by cheap debt as “zombie” companies.
* * *
Hard stop
Finally, hedge-fund managers see difficulty in ending quantitative easing.
“Central banks are sadly helping to create the ‘black hole,’ and the sucking noise and pull is getting bigger,” said Aberdeen’s Mr. McCaffery, “but you just have to keep going as your alternative options as a central banker are just too unpalatable to consider.
Using an analogy we first came up with in 2009, McCaffrey slammed the use of a drug placebo to keep the system intact: “More methadone is not going to help, a form of cold turkey [is] needed, but no central bank is going to do that,” he added. He warns governments’ debt-to-GDP levels have risen.
The punchline:
“In the long term, it implies rates can never go up, as the damage will be extraordinary in nature,” he said, as they struggle with their debt loads. For now, however, the market which moments ago hit new all time highs, is blissfully ignoring all of the above.
http://www.zerohedge.com/news/2016-12-09/top-hedge-funds-predict-how-it-all-will-end
by Tyler Durden
Dec 9, 2016 11:52 PM
In early 2009, roughly at the time when this blog was launched which coincided with the start of the greatest monetary experiment of all time, we warned that there are two ways it will end: either in hyperinflation, or a deflationary supernova, the failure of currency and, eventually, barter. Now, almost 8 years later, some of the world's top hedge funds are in agreement, and they are worried.
As the WSJ reports, these prominent hedge fund managers join an increasingly bigger and louder chorus which says central bank bond buying programs that are pumping trillions of dollars into global markets will end badly.
In yesterday's main event, the ECB said it would extend its asset purchase program to the end of next year, buying bonds at a reduced rate. As the following chart from BBG projects, at the ECB's revised rate of bond purchases, its balance sheet will soon surpass that of the Fed.
[url=http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/07/HF comp.jpg][/url]
So what happens next? Prominent managers have told The Wall Street Journal in recent interviews of their doubts about the endgame for quantitative easing around the world.
“There’s no non-messy way out of this,” said Luke Ellis, chief executive of Man Group, one of the world’s biggest hedge-fund firms with $80.7 billion in assets. “There’s two versions” of how this ends, he added. Either central banks could move to so-called ‘helicopter money,’ where they buy debt from the government, which then spends the proceeds or gives it to the population to spend. This “for a few years looks golden then leads to hyperinflation,” he said. Or the speed at which money circulates within the economy could grind to a halt. “Then you effectively have a barter economy,” he said.
In a series of exclusive interviews with the Journal, hedge-fund executives overseeing around $280 billion in total highlighted a range of problems created by quantitative easing. The problems they highlight are precisely those that QE was designed to solve, and are exactly the same problems we warned about since the 2009, for which we have been repeatedly branded some variation of "fake news." Now the skepticism has become mainstream.
This is what, according to the hedge fund managers interviewed by the WSJ, will happen:
Damage to economic growth
Rather than kick-starting growth, quantitative easing may do the reverse. Some managers fear it distorts financial markets and undermines capitalism. That system relies on profit-hungry investors to differentiate between strong and weak companies—funding the strong while letting the weak die. QE, say some managers, doesn’t differentiate.
For instance, the Bank of England is buying the debt of firms it deems make “a material contribution” to the U.K. economy. That has led some investment banks and companies to create new debt especially for it to buy. The ECB has bought €48.2 billion ($51.2 billion) of corporate debt since June, but the hoped-for private-sector investment hasn’t materialized.
“What does a market do? It’s a voting mechanism,” said Michael Hintze, billionaire founder of hedge fund CQS, which runs around $12 billion in assets. “Instead you’ve got this 800-pound gorilla out there who’s hoovering up assets. “There’s a misallocation of capital and an opportunity cost to the real economy,” added Mr. Hintze, whose portfolio is up 30% this year, ranking it one of the world’s top-performing hedge funds. “It means GDP is not growing as much as it might.”
Some put it even more strongly. “It’s definitely destructive of economic growth,” said Crispin Odey, founder of Odey Asset Management, which runs $8.2 billion in assets.
“Capitalism dies a death,” said Mr. Odey, who sees government policy as the main factor influencing markets. His fund, a top performer after the credit crisis, is down sharply this year because of being too bearish. “It’s all policy. It’s the Kremlin. And I’m in the gulags.”
* * *
Damage to society
In her speech to the governing Conservative Party conference in October, U.K. Prime Minister Theresa May spoke of “some bad side effects” from quantitative easing as people with assets got richer while those without them suffered. U.S. President-elect Donald Trump has said low rates have robbed savers. Those side effects include “envy and distress” within society, “as people think ‘I can’t get out of where I am,’” said Andrew McCaffery, group head of solutions at Aberdeen Asset Management, who looks after $170 billion in assets.
Ultralow interest rates mean the large part of the population with few financial assets begins to despair of how to generate income to fund retirement, he said.
“People see a developing black hole,” he said. This “increases the sense of there being little to lose for many” people.
Andrew Law, chief executive of New York-based Caxton Associates LP, which runs around $7.8 billion, said quantitative easing averted economic depression after the financial crisis.
But he added: “The losers of QE are society, and democracy is also a loser, because central banks are not publicly elected officials.”
* * *
Deflation
Quantitative easing was also introduced as a way of increasing private-sector spending and raising inflation. Some investors even worried it would spark hyperinflation and rushed to buy gold. Instead, say some managers, it has led to deflation.
“It took me a long time to work it out,” said CQS’s Mr. Hintze. “It’s a very complex issue.” He said that massive amounts of liquidity mean that “liquidity’s not worth much anymore,” which leads to negative interest rates. “I do think it [QE] is a massive deflationary force. The reason is because money is worth less but the price of real assets goes up.”
Mr. Odey said quantitative easing leads to deflation because weaker competitors are kept alive by cheap debt as “zombie” companies.
* * *
Hard stop
Finally, hedge-fund managers see difficulty in ending quantitative easing.
“Central banks are sadly helping to create the ‘black hole,’ and the sucking noise and pull is getting bigger,” said Aberdeen’s Mr. McCaffery, “but you just have to keep going as your alternative options as a central banker are just too unpalatable to consider.
Using an analogy we first came up with in 2009, McCaffrey slammed the use of a drug placebo to keep the system intact: “More methadone is not going to help, a form of cold turkey [is] needed, but no central bank is going to do that,” he added. He warns governments’ debt-to-GDP levels have risen.
The punchline:
“In the long term, it implies rates can never go up, as the damage will be extraordinary in nature,” he said, as they struggle with their debt loads. For now, however, the market which moments ago hit new all time highs, is blissfully ignoring all of the above.
http://www.zerohedge.com/news/2016-12-09/top-hedge-funds-predict-how-it-all-will-end
Today at 7:51 am by Rocky
» utube MM&C 3/19/24 Iraqi Dinar Update - Expectation Results - Al-Sudani - Taif Sami - Al-Alaq -
Today at 7:49 am by Rocky
» utube 3/18/24 MM&C Iraqi Dinar-- IQD-- Dinar Update -100% Electronic - Real Effective Exchange Rat
Today at 7:47 am by Rocky
» The President of the Republic stresses the importance of following up on the implementation of Artic
Today at 7:41 am by Rocky
» The Turkish Foreign Ministry reveals new details about Erdogan’s visit to Baghdad
Today at 7:37 am by Rocky
» Obelisk Hour: The ambassadorial file is complex and the political blocs have stakes in the appointme
Today at 7:35 am by Rocky
» Pressure to improve standards: Parliamentary Working Committee moves towards promoting the rights of
Today at 7:33 am by Rocky
» Will he hand over the authority of the region peacefully? ...The Democrat is mixing the political ca
Today at 7:32 am by Rocky
» Politician: 99% of the Kurdish parties will not suspend their participation in the region’s election
Today at 7:31 am by Rocky
» The disputes between the Kirkuk forces are approaching a solution
Today at 7:29 am by Rocky
» To remove the foreigner... the first round negotiations between Iraq and the coalition continue
Today at 7:28 am by Rocky
» Parliamentary Committee: The region continues to export oil through Turkish Ceyhan
Today at 7:27 am by Rocky
» To cover salaries.. Baghdad sends 1.5 billion dinars to Kurdistan
Today at 7:24 am by Rocky
» In less than 12 hours, 19,000 Iranians entered Iraq
Today at 7:22 am by Rocky
» In exchange for completing transactions, government employees taking bribes were arrested
Today at 7:21 am by Rocky
» Iraq is moving to build the largest solar energy station
Today at 7:19 am by Rocky
» Amending the budget for social care and the disabled
Today at 7:18 am by Rocky
» A proposal to appoint social welfare beneficiaries to the security services
Today at 7:17 am by Rocky
» Calls for “regionalization” are outbidding and personal interests
Today at 7:15 am by Rocky
» Parliamentary Finance: Traffic fines will increase the state budget
Today at 7:14 am by Rocky
» Support the agricultural engineer
Today at 7:13 am by Rocky
» Experts: Activating the industrial and agricultural sectors stops 80% of imports
Today at 7:12 am by Rocky
» Central Bank sales exceed $245 million today
Today at 7:09 am by Rocky
» Today's newspapers are interested in Al-Sudani's assertion that the state of stability achieved in I
Today at 5:16 am by Rocky
» Al-Badran: The reason for postponing the Basra Council session is to give members sufficient time to
Today at 5:14 am by Rocky
» The Contractors Registration and Classification Committee at the Ministry of Planning completed more
Today at 5:13 am by Rocky
» Parliamentary Foreign Affairs: We discussed these files with the Romanian Senate
Today at 5:12 am by Rocky
» Baghdad Investment Authority to / Nina /: We will adopt future programming to implement projects and
Today at 5:10 am by Rocky
» Their arms are "electronic flies"... Personalities who lost their positions seek to stir up strife b
Today at 5:08 am by Rocky
» Decrease in dollar exchange rates in morning trading in Baghdad markets
Today at 5:06 am by Rocky
» An international organization: Plans to enhance the livelihood of affected displaced and returning f
Today at 5:04 am by Rocky
» Dozens of factories are halted... Industry: We went into partnership with the private sector to rest
Today at 5:03 am by Rocky
» The Iraqi Communist criticizes the decision to abolish the Kurdistan Parliament quota: positive disc
Today at 5:01 am by Rocky
» Al-Sudani confirms Iraq's aspiration for the participation of Azerbaijani companies in construction
Today at 5:00 am by Rocky
» An initiative by the President of the Republic to solve the problem of the region’s salaries
Today at 4:59 am by Rocky
» The Kurdistan government complains about Baghdad’s finances: It is ready to pay 59% of the salaries
Today at 4:58 am by Rocky
» Al-Khanjar: The Democratic boycott of the elections puts the future of Iraq in danger
Today at 4:55 am by Rocky
» Iraq is ranked seventh in the Arab world and 33rd globally in the misery index
Today at 4:54 am by Rocky
» Trade announces the achievement of self-sufficiency in ration card materials
Today at 4:52 am by Rocky
» Finance releases funding for state employees’ salaries for the month of March
Today at 4:51 am by Rocky
» Elon Musk: 20 seats won by Biden and his party with the votes of “illegal immigrants”
Today at 4:50 am by Rocky
» A "paradigm shift" awaits the regions of the belt and outskirts of Baghdad
Today at 4:47 am by Rocky
» “Speicher and Malwiya Fund”..Parliamentary Finance talks about “illegal fees” in state departments
Today at 4:46 am by Rocky
» Government admission of the failure of the meter campaign: Generators’ compliance is “almost non-exi
Today at 4:44 am by Rocky
» Iraq is proceeding with the zero nuclear reactor project.. Find out its details
Today at 4:42 am by Rocky
» The decision to “reduce exports”... “unplanned” production for Kurdistan will cost Baghdad half a bi
Today at 4:41 am by Rocky
» The powers of Kurdistan.. The Federal Court confirms its commitment to what was agreed upon by the “
Today at 4:39 am by Rocky
» Launching funding for state employees’ salaries for the month of March
Today at 4:38 am by Rocky
» Iraq and Syria top the "least safe" Arab countries
Yesterday at 7:23 am by Rocky
» Governor of Baghdad: 20 projects will be included during the current year in the city of Nahrawan
Yesterday at 7:20 am by Rocky
» More than $242 million in central bank sales today
Yesterday at 7:17 am by Rocky
» Advisor: Sudanese is determined to close the displacement file
Yesterday at 7:14 am by Rocky
» Al-Sudani: The implementation of the 2023 budget witnessed a success that must be invested in
Yesterday at 7:13 am by Rocky
» The Baghdad Council will decide on the nomination of the committees in the coming days
Yesterday at 7:10 am by Rocky
» Al-Samarrai: The Sunni community is not in favor of removing American forces
Yesterday at 7:08 am by Rocky
» A warning from Al-Rasheed to those wishing to apply for advances and loans
Yesterday at 7:06 am by Rocky
» Azerbaijan expresses its desire to participate in the implementation of joint projects in the oil an
Yesterday at 7:05 am by Rocky
» Fuel cards arouse citizens' discontent
Yesterday at 7:03 am by Rocky
» utube MM&C 3/16/24 0:05 / 18:16 Iraq Federal Court Brings - Strength to Financial - Politic
Yesterday at 5:18 am by Rocky
» MM&C 3/18/24 Sudanese Advisor: Iraq will leave government monetary dealing in mid-2024
Yesterday at 5:17 am by Rocky
» A delegation from the Kurdistan government visits Baghdad to discuss the issue of localization of sa
Yesterday at 5:11 am by Rocky
» Director of the Central Oil Company: We are keen to provide the appropriate investment environment
Yesterday at 5:10 am by Rocky
» The Energy Parliament calls for reporting generators violating government pricing
Yesterday at 5:08 am by Rocky
» A representative reveals the fate of the laws of “previous sessions”
Yesterday at 5:07 am by Rocky
» Politician: Coordination holds the keys to resolving the “Parliament Presidency” conflict
Yesterday at 5:05 am by Rocky
» Al-Sudani: Iraq wants to carry out its peaceful activity in the field of atomic energy
Yesterday at 5:04 am by Rocky
» Including a minister and a parliamentarian... 38 arrest and recruitment orders were issued against t
Yesterday at 5:02 am by Rocky
» Integrity: Citizens’ cooperation resulted in detecting inflation and returning state funds
Yesterday at 5:01 am by Rocky
» Agriculture presents 97 projects to the Ministerial Council for the Economy
Yesterday at 4:59 am by Rocky
» Al-Sudani: We succeeded in implementing the 2023 budget, and we must continue to complete economic p
Yesterday at 4:58 am by Rocky
» Labor adopts new mechanisms to reduce the phenomenon of begging
Yesterday at 4:57 am by Rocky
» Electronically.. directing the collection of fees tomorrow in an Iraqi governorate
Yesterday at 4:56 am by Rocky
» Held in Brussels.. Iraq receives an official invitation to attend the Nuclear Energy Summit
Yesterday at 4:55 am by Rocky
» Kurdistan has been paralyzed. There has been no liquidity in hand for 50 days, and the truth has bee
Yesterday at 4:53 am by Rocky
» The dollar continues to decline against the Iraqi dinar on the stock exchange and exchange offices
Yesterday at 4:52 am by Rocky
» The Minister of Oil reveals the reasons for Shell’s withdrawal from Nebras: It will be divided into
Yesterday at 4:51 am by Rocky
» The Housing Fund advises loan applicants and launches a link for inquiries
Yesterday at 4:50 am by Rocky
» He stressed that the government’s vision is to make one class not exceed 25 students...Government me
Yesterday at 4:48 am by Rocky
» Al-Hakim and Al-Halbousi stress the importance of choosing a speaker for Parliament in accordance wi
Yesterday at 4:47 am by Rocky
» Iron and Steel Company: Iraq is on the verge of a major industrial revolution
Yesterday at 4:46 am by Rocky
» Economists: Citizens still prefer cash transactions over electronic transactions
Yesterday at 4:45 am by Rocky
» The compass of Iraq's foreign policy in a world of turbulent polarization
Yesterday at 4:43 am by Rocky
» Parliamentary Finance: The federal budget is in the corridors of the Council of Ministers, and there
Yesterday at 4:42 am by Rocky
» Integrity calls on citizens to report the inflation of funds in the sector of the Ministry of Labor
Yesterday at 4:40 am by Rocky
» Al-Sudani directs the launch of initiatives for young businessmen and investors
Yesterday at 4:38 am by Rocky
» Representative agriculture emphasizes taking supportive measures for the local product
Yesterday at 4:37 am by Rocky
» An economist calls on the government to support and stimulate the private sector
Yesterday at 4:36 am by Rocky
» Al-Ittihad: Employees and retirees in Kurdistan paid the price of political differences with Baghdad
Yesterday at 4:34 am by Rocky
» Al-Samarrai and Al-Hakim discuss the importance of achieving political and constitutional entitlemen
Yesterday at 4:32 am by Rocky
» Only 23 million dunums. Iraq exploits approximately 50% of its arable land
Yesterday at 4:30 am by Rocky
» Türkiye considers it a political issue.. Where have the negotiations reached regarding Iraq’s water
Yesterday at 4:29 am by Rocky
» Sudanese receives an invitation to attend the Nuclear Energy Summit in Brussels - Urgent
Yesterday at 4:27 am by Rocky
» Central Bank sales exceed $240 million today
Sun 17 Mar 2024, 6:52 am by Rocky
» Parliamentary Finance calls on the government to expedite sending the 2024 budget to Parliament
Sun 17 Mar 2024, 6:47 am by Rocky
» ‘We’re So Sick of It’: Northern Border Crisis Gets Worse
Sun 17 Mar 2024, 6:35 am by Bama Diva
» A representative holds Kurdistan responsible for the faltering legislation of the oil and gas law
Sun 17 Mar 2024, 5:27 am by Rocky
» Warnings of the danger of the increase in foreign labor in Iraq
Sun 17 Mar 2024, 5:26 am by Rocky
» Iraq's oil exports to America decreased within a week
Sun 17 Mar 2024, 5:25 am by Rocky
» Al-Sudani chairs an “important” meeting to form the Kirkuk government
Sun 17 Mar 2024, 5:23 am by Rocky